King's Place expects a visitor...

This from Bulldog Drummond...

Apparently Sir Alan Budd from the Office of Budget Responsibility is very keen to pay a visit to Network Rail's King's Place HQ.


As Sir Alan takes the Tube from Westminster to King's Cross no doubt the following questions will pass through his mind:

• Need the Government be concerned that the publicly underwritten debt of Network Rail will rise from some £23bn today to in excess of £31bn by April 2014 (equivalent to 35% of Ireland’s present sovereign debt)?

• Are the Government right to back a business model that supports a company that has to roll up interest due every year into borrowings? Although with a keen eye for detail Sir Alan will of course note that in 2013/14 it is projected that a small excess of income will make almost a £400m offset to an interest bill of £1.7bn in that year.

• Is Network Rail’s business model right to assume that after spending record sums on infrastructure over the next five years income will only rise by a projected 15% (from £5.9bn in 2009/10 to £6.7bn 2013/14).

• Is the ORR's reliance on the Regulatory Asset Base (RAB) well placed as a measure for calculating Network Rail’s soundness as a business. Or might it be better to have a system based on balancing current expenditure against future income as a means of assessing whether borrowing is prudent?

• Is it wise that only 25% of Network Rail’s current debt is in conventional UK Sterling bonds, whilst nearly half is index linked and the remainder is denominated in foreign currencies. Happily short term interest payments are low for these classes of debt, but a longer-term deterioration in the UK’s global financial position may hit hard an exclusively Sterling based business with such a borrowing profile.

No doubt upon meeting NR's Board such trifling concerns will be instantly swept away.

Or perhaps not…

UPDATE: This from Ithuriel...

But Network Rail's debt is incurred to pay for enhancements requested by Government.

So you can't blame the company for doing what it's funder specifies.

UPDATE: This from Bulldog Drummond...

Ithuriel, when not flitting around doing jobs for Gabriel in Paradise Lost, doubtless has had time to look at the Companies Act 2006 which requires directors of companies, 'to promote the success of the company for the benefit of its members as a whole.'

It sets out a number of factors which directors must take into account to promote success.

Of particular interest is the need to take into account the likely consequences of any decision in the long term.

To say that 'Network Rail's debt is incurred to pay for enhancements requested by Government' misses the point.

If Network Rail is a company it must have a duty first to its own success and longevity and getting into massive and unrepayable debt doesn't look too smart a strategy.

Unless of course Ithuriel is suggesting that Network Rail isn't really a 'proper' company...